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The Small Business Association estimates there are around 250,000
angel investors in the USA.. Angel investors are drawn to
Chicago's tech renaissance of app developers, game developers, a
large Drupal community, product developers for mobile devices,
and much more. Most--but not all--startups are losing
money.

I cannot speak for other angel investors, but I'll explain what
it takes to get me to invest. The following snippets are based on
actual meetings I've had over the past eight months with
developers seeking funding for their ventures:
First the Don'ts

Insist it's a $1 Billion Company: Develop a game
app for mobile devices and then don't carry a mobile device with
you to demonstrate it. Claim "proof of concept" because you've
done beta testing with 100 people on Android but haven't tested
other mobile devices. Outsource development to the Ukraine and
Pakistan and don't file conditional patent applications. Say
you'll someday generate revenue by selling ads linked to your
free app, but eschew offers of introductions to advertisers. Ask
investors to take a convertible note structured with the least
favorable terms. Insist that "giving away" equity would "send the
wrong message," because Yahoo or Facebook will buy you for $1
billion. Make it obvious that most of the money isn't going for
development; you need to pay yourself a salary. After the
Facebook IPO tanks and you can't generate interest in your gaming
app, come back and offer to sell the entire company for less than
your initial request for seed funding.
Pretend You Don't Need Funding: Watch the Social Network
and show up wearing cheap flip-flops.
Miracle Marketing: Tell me your marketing plan is to
eventually create a video that will go viral.

Have an Unoriginal Idea In Need of Talent: Start
with an idea that isn't patentable, proprietary or original such
as creating branded advertising via short entertaining videos for
distribution on mobile devices. Propose to lease a mobile
delivery platform to distribute the as yet non-existent videos.
Claim no one has thought of that before. (Never mind the other
two groups pitching the same idea in Chicago.) Explain that your
key man is still employed by someone else and can't come on board
until your angel gives you the money to pay him. Let your angels
know it will take you 18 months--and you'll burn through a couple
of million--before you breakeven. Value your non-producing
company at $10 million.

Dating Site: Pitch a dating site that sounds
like 20 other dating site pitches in the last month. I'd be
delighted to introduce you to each other.

Throw Away Success: Design a low-tech useful
product, secure a provisional patent, and manufacture limited
inventory. Then do not respond to my investment offer. Don't
seize opportunities when offered introductions and retail
contacts to get the sales ball rolling. Sell a few items to
friends and family and then generate no further sales. Chase
other "investors" that don't pan out and come back several months
later and ask me if I'm still interested in funding you.

Take Credit for the Angel Tax Credit: Illinois
and several other states offer substantial angel investor tax
credits with specific conditions that must be met. (There are
Federal incentives in the works, too.) Ignore the fact that
informed angel investors want to invest in a business that can
make money and don't consider a tax credit part of their return
on investment when they evaluate the risk and potential rewards
of investing with you. Instead, claim the tax credit is your way
of "giving something back," since your company doesn't actually
generate any revenue yet, albeit it has lots of expenses with no
plan to control overhead. Be oblivious to the fact that your
terms of investment violate one or more of the conditions for
investors' tax credit eligibility.

How to Close an Investment

Barrier to Entry: If you have a provisional
patent, if you've developed proprietary information, if you have
a sustainable competitive advantage, if you have previous
industry experience, mention it right away.

Skin in the Game: If you've invested your own
money, mention it. Explain how far your investment took you and
why you need more funding to take your business to the next
level. Sweat equity counts, too, so explain what you've brought
to the table so far.

Show Off: This is your moment to shine. If you
have a developed product, demonstrate it, and tell me how much
you love using it and how much I'll love it, too. If it's meant
for a man, tell me how much he'll love it when I give him one of
your products.

Have a Business Plan: No one expects you to have
all the answers, but if you know the right questions, you're head
and shoulders above other pitches. Be prepared to both answer and
raise questions about your target market, marketing strategy,
technology, patents, and potential competition. Have some idea of
the costs for manufacture, distribution/advertising, operating
costs, working capital needed, taxes, and more. If you don't have
all the answers, don't worry, but try to identify what you don't
know and still need to know. Explain where you need help. You're
asking for capital and for expertise and connections, so try to
figure out in advance what you'll need and why.

Value Your Company: I only consider equity
investments. Explain how much of an investment you think you need
and how much of the ownership of the company you're willing to
give up.

If one of the things you need help with is how to value your
company, you're not alone. But come prepared to seriously discuss
the issues. If we can eventually agree, you've got a deal.